dependence depends, doesn’t it?

another in the miseducation series

In the very early days of this ‘stack, I did a short series called “Taleb as Miseducator”, in which I argued that misreadings of all of Nassim Taleb’s books had been, annoyingly, very influential. I don’t think there’s quite enough material, yet, to do a similar series on “Underground EconomyEmpire” (thanks to the reader who noticed this - I guess it shows that I’m typing from memory!), Henry Farrell and Abe Newman’s book on the concept of “weaponised interdependence”, but coverage of the US/Canada trade war and the Straits of Hormuz makes me think we might be on the way there.

To begin with, something which has stuck at the back of my mind for ages. It’s from “Till Time’s Last Stand”, David Kynaston’s history of the Bank of England. In it, he quotes a memo circulated as a set of “Opinions Attributed to Central Bankers” and one of them is:

“Wave the big stick if you like, but never use it; it may break in your hand. Better still, try wagging your finger”

The memo was somewhat satirical (another maxim was “all expenditure is inflationary, but government expenditure most of all”), but warning here is that some weapons are much better for threatening than they are for using and there is a grave danger of revealing yourself to be a paper tiger. In the context of weaponised interdependence, there are at least two potential problems with moving from the bluffing stage to the show-down.

First, it’s interdependence. In the book “Underground Empire”, the big examples used are the US dollar, the internet and high-end chip technology. These are all things where you can genuinely make a case that they’re irreplaceable and have no substitutes. They aren’t like natural gas or lithium, but we still get National Security Guys and Supply Chain Knowers writing things like “OMG! [Current Lowest Cost Producer] is responsible for [some fairly significant market share] of the economy’s [important but basically commoditised input]! We are so damn vulnerable to their control of this vital chokepoint!”.

And then getting surprised when the chokepoint gets choked and nothing much happens. In actual fact, my experience with professional logistics people is that they bloody love it when supplies of something vital are interrupted. Scrambling around to secure alternatives is the fun part of the job, when they get a chance to demonstrate how clever and indispensable they are. It’s a welcome distraction in a career that is otherwise basically trucking.

The second way that weaponised interdependence can backfire is linked to the fact that it’s interdependence. If trying to shut down the chokepoint is more inconvenient to you than to the enemy, or if you’re just a lot less willing to endure inconvenience than they are, it’s a pretty useless threat. This is in many ways a design feature of the original system of weaponised interdependence; counterparties of the USA didn’t mind so much about the way in which it was built up, because they presumed that it wouldn’t actually be used because it was costly. But it turns into a bug rather than a feature when you move from threat to use.

For example, it turns out that if you are really going to cut off Russia from the global financial system, you would have to start sanctioning crypto exchanges and Gazprom payments; since the USA doesn’t want to do that, the dollar system weapon turns out to be a bit of a broken stick. (In the book “Underground Empire”, Farrell and Newman anticipate this to a great extent; it’s also notable that they spend a lot more time on the weaponisation of the dollar system as a tool of information-gathering for US intelligence than they do on this threat potential).

Which brings me on to a final point, which comes from Henry’s and my work on “Global (Dis)Order” from last year. The image that was meant to be in your head with “weaponised interdependence” was a high tech system like a Cruise Missile that was under the control of the defense establishment and subject to strategic planning. What we actually got was more like the kind of weapons you can buy at Walmart on Saturday night if someone has annoyed you. We noted in our working paper that so far, the Trump administration had actually been quite reluctant to push its luck on the dollar network, but this week, Scott Bessent started to throw around threats of more secondary sanctions on “a major financial institution”

And this interacts with the inventiveness and responsiveness of logistics guys and their equivalents; the more people are worried that the chokepoint would be used, the greater their incentive to become less dependent on it. The big locuses of weaponised interdependence were meant to be semiconductors, AI and the banking system. All of these have got a lot less hegemonic in the last few years. We might want to adapt Theodore Roosevelt’s description of American foreign policy to take account of Kynaston’s maxim – because the stick might break, it is much better to speak softly and point your finger.